Growing inflation worldwide is casting a pall over the global economic recovery and risks hurting the financial system, China’s top banking regulator has been quoted as saying.
China Banking Regulatory Commission Chairman Liu Mingkang (劉明康) said inflation was soaring in both developed and emerging economies as a result of monetary easing in the US, the EU and Japan, which had sent a flood of liquidity into global commodity markets, pushing up prices.
“If asset bubbles and inflation pressures continue to increase, [the world] could be forced down the path of raising interest rates to deal with [potential] stagflation,” Liu told the Communist Party-backed Study Times in comments published on Monday.
Stagflation is a vicious mix of low economic growth and high inflation.
This “may drag down recovery of the real economy and once again impact the global financial system,” he said.
Liu also warned that uncertainties remained in the Chinese economy given signs of weakening consumption, surging consumer prices and pressures on corporate revenue growth, according to the report.
Meanwhile, Australia held official interest rates steady at 4.75 percent yesterday, saying floods and cyclones had thrown the economy into reverse and Europe remained plagued by debt fears.
The Reserve Bank of Australia left the official cash rate unchanged for the sixth consecutive time, after recent data showed the heaviest economic contraction in 20 years due to natural disasters last summer.
Reserve Bank of Australia Governor Glenn Stevens said there had been a “sharp” 1.2 percent on-quarter fall in output in the first three months of this year, with “resumption of coal production in flooded mines taking longer than initially expected.”
The extreme weather had also buoyed inflation, but the bank expected these “temporary price shocks” to dissipate, bringing inflation “close to target over the next 12 months.”
In the medium-term, Stevens forecast “trend or higher” growth, with “very large capital spending programs in the resources sector” and a mild boost expected from disaster rebuilding and recovery efforts.
Globally, Stevens said very high commodity prices were weighing on income and demand in major economies and elevating inflation.
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